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What is SME Banking? Types, Importance and Benefits

A small and medium-sized enterprise (SME) is a company whose income, assets or number of employees falls below a certain limit.
authorImagePriyanka Dahima27 May, 2024
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What is SME Banking?

What is SME Banking?: India's economy is growing and according to the report, it has grown at a CAGR of 5.5% in the last 10 years. If we look more closely at the growth graph, we notice that SMEs were an important factor in the GDP of the country. MSMEs or Micro, Small and Medium Enterprises are an important part of the Indian economy as they provide job opportunities to many Indians, especially in rural areas.

The government recognizes the importance of the SME sector and has taken initiatives to encourage businesses. If you want to get an idea about small and medium enterprises (SME) in India, must read our entire blog.

What is SME Banking?

In India, the importance of SMEs in business is simple. This means small and medium-sized enterprises (SMEs). These are companies classified under the MSME scheme on the basis of investment and annual turnover. Small and medium-sized businesses in other countries, such as the United States and the European Union, are classified according to the strength of their employees. In India, however, the meaning of SME is generally not defined according to the strength of employees, but it is observed that a medium-sized enterprise usually employs 20-100 people.

Types of SMEs

SMEs, or small and medium-sized enterprises, are divided into two categories:
  1. Manufacturing companies that are involved in the production of goods. They are further classified as small or medium enterprises according to their investment in machinery and equipment and their annual turnover.
  2. Service Companies include companies or organizations that provide services. Like industrial companies, service companies are still classified as small or medium-sized companies based on annual turnover and equipment investment.
Simply put, an SME can operate in both the manufacturing and service sectors. Now that you have an idea of ​​the broader categories of SMEs, here's more information on how to divide them into small and medium-sized businesses. We also mention the category of micro enterprises because SMEs are part of a larger umbrella called MSMEs.

Importance of SME

Over the years, SMEs have contributed to the growth of the Indian economy. Here are some of the major contributions of SMEs or MSMEs to the Indian economy.
  1. SMEs are a boon for Rural Development: SMEs have played a key role in the industrialization of rural areas with low capital costs. As mentioned earlier, the MSME sector has contributed significantly to the socio-economic growth of rural India.
  2. SMEs created Jobs: SMEs, especially micro and small enterprises, were one of the most important recruiters in rural areas. SMEs employ more than 110 million people in approximately 63 million companies.
  3. Key Supporters of Make in India Mission: MSMEs have been major contributors to the Make in India and Made for the World missions. These micro, small and medium enterprises produce 45 percent of India's manufactured goods. In addition, the share of these companies in total exports is more than 50% of traditional high-tech products.

What is UAM Number?

Udyog Aadhaar Memorandum (UAM) Number is issued to certified Micro/Small/Medium Enterprises. Now, SMBs don't have to avoid using useful government systems. Many Indian companies are unregistered due to lengthy paperwork. As a solution, the government proposed this simplified process. UAM registration saves MIMEs from the previously lengthy self-certification process. The registration process is completely paperless and can be completed online. Upon completion, the applicant will receive a unique Udyog Aadhaar Number (UAN). Udyog Aadhaar Number (UAN) is required to register for MSME scheme benefits. However, UAM is not mandatory for all SMEs. Currently, entrepreneurs with UAM have to visit Udyam registration to avail of various MSME schemes. Its last date was 30th June 2022. If you have not switched to Udyam registration, you need to re-register on the Udyam portal to get MSME benefits.

Benefits of Udyam Registration

Here are the Benefits of Udyam Registration for you-
  • This is a permanent identification number that does not need to be renewed
  • You can complete the process even with a smartphone
  • It is free
  • You can get easy loans without guarantees and government subsidies
  • There is a 1% interest exemption. about bank account overdraft
  • Prefer to receive government offers
  • Benefits from various taxes and discounts on electricity bills
  • 50% special discount on filing trademark and patent applications
  • Avoid payment delays by buyers and quick resolution of disputes.

What is SME Banking FAQs

Q1. What is SME?

Ans. A small and medium-sized enterprise (SME) is a company whose income, assets or number of employees falls below a certain limit.

Q2. What are the Types of SME?

Ans. Manufacturing companies that are involved in the production of goods. They are further classified as small or medium enterprises according to their investment in machinery and equipment and their annual turnover. Service Companies include companies or organizations that provide services. Like industrial companies, service companies are still classified as small or medium-sized companies based on annual turnover and equipment investment.

Q3. What are the benefits of SME?

Ans. The benefits of SME are - This is a permanent identification number that does not need to be renewed You can complete the process even with a smartphone It is free You can get easy loans without guarantees and government subsidies There is a 1% interest exemption. about bank account overdraft, etc.

Q4. What are the importance of SME?

Ans. We have detailed the importance of SME in the PW blog.
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